Debt facts: Is there such a thing as good debt?

When people talk about debt, it’s usually with a tone of resolve, like a coach motivating players for a major game: Go out there and tackle defensively – just don’t rack up more penalties.

But not all debt is a problem to be solved or even avoided. In fact, these debt facts prove some debt can actually be helpful for reaching major goals.

Separating good from bad

According to Karen Guy, Business and Marketing Analyst at SAC Federal Credit Union, “good debt” is an investment that creates value.

“For example, if you’re pursuing a college degree, you may need to apply for a student loan because you’re investing in your future, and with the knowledge gained, plan on obtaining a stable career,” she says.

Other examples of good debt include:

Home mortgages

Business loans

Home improvement loans

Loans for investments

Bad debts, on the other hand, usually involve spending on products and services that don’t advance your life goals. Think about that trip to Hawaii or a daily lunch outing; both can increase credit card debt.

Make a plan

When handling your own finances, you’ll likely want to put most of your firepower toward “bad debts” that are weighing you down with unnecessary fees and interest.

By separating good from bad in your mind, you’ll have a clearer view of your debt profile, which leads to stronger, more robust strategies.

The ultimate financial goal is to reduce all your debt, and it would be great to live debt-free. However, loans can also help you improve your financial situation. A loan for college might help you move to the next level in your career. Taking out a loan for a rental property might help you earn extra income. Making wise decisions about the debt you take on will improve your financial standing in the long run.

Now go out there and win that debt game!

Have you taken on good debt? Share your thoughts in the comments below.

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